Where to put downpayment needed in 2 years.

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Joined: Tue Oct 10, 2017 3:52 pm

Where to put downpayment needed in 2 years.

Post by Hoglebed » Wed Oct 11, 2017 5:49 pm


1. I am hoping to purchase a house in a little over two years. My price range is $220-250k. I want to set aside $60,000 of the $87,000 (see below) for a house down payment plus closing costs. I am trying to figure out where to park this money. I did a little digging and came up with these as possible options:

Code: Select all

Ticker	Product			Yield	Post-Tax*	Treasury	Corporate	Duration
VMRXX	Money Market		1.14%	0.74%		-		-		-
--	Barclay's Savings 	1.30%	0.85%		-		-		-
VFIRX	Short Term Treasury	1.31%	0.85%		100.00%		0.00%		2.2
--	2-Yr CD			1.60%	1.04%		-		-		-
VBIRX	Short Term Bond		1.72%	1.12%		70.00%		30.00%		2.8
VFIUX	Intermediate Treasury	1.83%	1.19%		100.00%		0.00%		5.2
VFSUX	Short Term Inv Grade	2.08%	1.35%		20.00%		80.00%		2.6
VBILX	Intermediate Bond	2.55%	1.66%		50.00%		50.00%		6.5
VWITX	Intermediate Municipal	1.78%	1.78%		-		-		5.1
VFIDX	Intermediate Inv Grade	2.68%	1.74%		10.00%		90.00%		5.5
*28% Federal + 7% Maine							
My goal for the money is to retain purchasing power (offset inflation) as best as I can, with low volatility. For that reason, I don't know if I want to be exposed to any credit or municipal risk. I am personally leaning towards the CD at this point, but I am opened to opinions.

2. Depending on what happens in the market over the next 2 years, I may want to be able to access some or all of this money if an opportunity arises to purchase stocks at a discount. If this was the case, I would be fine with continuing to rent for a couple years while I save up another down payment.

3. I am opened to any other portfolio suggestions or critiques. Overall financial goals are to hopefully cut down to 24hr/week in 4-6 years, then fully retire at 45 with a 3.5% SWR.

NOTE: I have never had my personal mettle tested when it comes to bear markets, thus the fairly conservative AA. Depending on how I personally feel during the next one, I may adjust upwards to 70/30 or 80/20 if I behaved (stuck to my AA/IPS). As it is right now my need (low), ability (high) and willingness (moderate) tells me that my allocation is about where I should be currently.

Emergency funds: Approximately $27,000 in checking, which would last me about 10-11 months at current spending rates. I live frugally and happily.
Debt: $9,000 on a 2016 Mazda CX-5 at 3% APR worth roughly $17,000
Tax Filing Status: Single
Tax Rate: 28% Federal, 7% State
Current Income: ~$120,000
State of Residence: Maine
Age: 28
Desired Asset allocation: 60% stocks/40% bonds/cash
Desired International allocation: 40%

Current retirement assets

401k (109k)
-100% State Street Aggregate Bond Index – SSFEX (ER 0.04)

Roth IRA (37k)
- 100% Vanguard Small Cap Value – VSIAX (ER 0.07)

Taxable Account (138k)
- 50% Vanguard Total US – VTSAX (ER 0.04)
- 50% Vanguard Total Int' – VTIAX (ER 0.11)

Bank (87k)
- 100% Cash earning ~0.1% (source of the $60k down payment)

Total Assets (less car): $371,000

Current AA: 48% Stocks, 52% Bonds/Cash

Current AA (not including $60k): 56% Stocks, 44% Bonds/Cash

Thank you to this great board!

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Tyler Aspect
Posts: 1080
Joined: Mon Mar 20, 2017 10:27 pm
Location: California

Re: Where to put downpayment needed in 2 years.

Post by Tyler Aspect » Wed Oct 11, 2017 7:46 pm

The traditional answer is to use a CD for the period where you are saving up money for a down-payment. Of course it will have poor return during this time.

My personal take is that a house is a cost center that will absorb a lot of cash for its upkeep, and even during the run-up to purchase it. The modern approach is to value mobility and rental flexibility. I advocate purchasing a house as late as possible, with pre-saved taxable retirement savings. This way, you never have to be stuck with poor CD rates while a big pot of money lingering years on end.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

Posts: 118
Joined: Mon Apr 27, 2015 4:55 pm

Re: Where to put downpayment needed in 2 years.

Post by dcarste » Wed Oct 11, 2017 8:22 pm

For sure if you have more than 25K, then Ally Bank has a popular product called a "No Penalty CD", which is essentially a 1.5% CD that you can take or "cancel" your CD and keep all interest earned...at any point in time.

Basically a savings account, tap a button online to cash in the CD back to your bank account...no penalty. Many on here use it. I have 85K+ spread across 3 CD's. They have to each be > 25K to get the 1.5% CD rate, which it really isn't a CD if your money is not locked up (but it is a CD and FDIC insured). Not a scam I spent a lot of time asking around, calling, investigating etc.

Posts: 454
Joined: Fri Aug 05, 2016 10:31 am

Re: Where to put downpayment needed in 2 years.

Post by SimplicityNow » Thu Oct 12, 2017 11:08 am

I agree about using the Ally 11 month 1.5% no early withdrawal penalty CD. I wouldn't choose a more aggressive investment that is going to yield a slightly higher amount. Money invested that is needed in the next 2 years should have very little risk. If interest rates rise and the yields on CD's increase you can break the Ally CD after 6 days with no penalty.

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